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Long-lived Collateralized Assets and Bubbles

  • Aloisio Araujo
  • Mário Páscoa
  • Juan Pablo Torres-Martínez

When infinite-lived agents trade long-lived assets secured by durable goods, equilibrium exists without any additional debt constraints or uniform impatience conditions on agents' characteristics. Also, regardless of whether assets' net supply is positive or zero, price bubbles are absent when physical endowments are uniformly bounded away from zero. Otherwise, bubbles may occur, even for assets in persistently positive net supply and for deflators yielding finite present values of aggregate wealth.

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File URL: http://www.econ.uchile.cl/uploads/publicacion/2417b908-0743-4f10-aa5a-4fe13811d8a3.pdf
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Paper provided by University of Chile, Department of Economics in its series Working Papers with number wp284.

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Date of creation: Jul 2008
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Handle: RePEc:udc:wpaper:wp284
Contact details of provider: Web page: http://www.econ.uchile.cl/
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  1. Aloisio Araujo & M�rio Rui P�scoa & Juan Pablo Torres-Mart�nez, 2002. "Collateral Avoids Ponzi Schemes in Incomplete Markets," Econometrica, Econometric Society, vol. 70(4), pages 1613-1638, July.
  2. Mário Páscoa & Myrian Petrassi & Juan Pablo Torres-Martínez, 2008. "Fiat money and the value of binding portfolio constraints," Working Papers wp283, University of Chile, Department of Economics.
  3. Gale, David, 1973. "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory, Elsevier, vol. 6(1), pages 12-36, February.
  4. Hernandez D., Alejandro & Santos, Manuel S., 1996. "Competitive Equilibria for Infinite-Horizon Economies with Incomplete Markets," Journal of Economic Theory, Elsevier, vol. 71(1), pages 102-130, October.
  5. Grandmont, Jean-Michel & Younes, Yves, 1972. "On the Role of Money and the Existence of a Monetary Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 355-72, July.
  6. Araujo, Aloisio & Fajardo, Jose & Pascoa, Mario R., 2005. "Endogenous collateral," Journal of Mathematical Economics, Elsevier, vol. 41(4-5), pages 439-462, August.
  7. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  8. Eduardo L. Giménez, 2003. "Complete and incomplete markets with short-sale constraints," Economic Theory, Springer, vol. 21(1), pages 195-204, 01.
  9. Manuel S. Santos & Michael Woodford, 1993. "Rational Asset Pricing Bubbles," Working Papers 9304, Centro de Investigacion Economica, ITAM.
  10. Magill, Michael & Quinzii, Martine, 1996. "Incomplete markets over an infinite horizon: Long-lived securities and speculative bubbles," Journal of Mathematical Economics, Elsevier, vol. 26(1), pages 133-170.
  11. Felix Kubler & Karl Schmedders, 2001. "Stationary Equilibria in Asset-Pricing Models with Incomplete Markets and Collateral," Discussion Papers 1319, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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